Sales excluding the auto sector contracted a sharper 0.6% to C$32.38 billion following a 1.5% increase the previous month.

Market expectations were for overall July sales to rise 0.5% and ex-auto sales to be flat, according to a report from Royal Bank of Canada.

Sales volume was flat. This figure, which feeds into estimates of output growth, suggests retail sales may have weighed on July's gross domestic product. It is also an early sign that consumer spending may have slowed in the third quarter after strong gains in the previous three months.

The retail sales report was the last piece of data economists needed to firm up their estimates for July's GDP report, which is due next week.

Mr. Jean said that, given flat sales volume and a drop in wholesale sales volumes for July, he may mark down his current estimate of 0.2% output growth for the month, though not into negative territory.

As a gauge of consumer spending, the soft retail sales figures "means that we had a pretty strong second quarter and now we're heading into the third quarter on a flat footing," because of tepid income growth and near-record household debt, he said.

Overall, sales were down in five of the 11 sectors, representing 55% of retail trade, including at general merchandise stores, food and beverage stores, and clothing and accessories stores. Sales at gasoline stations also fell.

The declines overshadowed a 2.5% jump in sales at new-car dealers, which reached an all-time high of C$8.34 billion.

Overall sales were down in four provinces, including Quebec which accounted for most of the national decline. Higher car sales in Ontario and Alberta more than offset declines in most other sectors in these two provinces.